From now on, immunity from prosecution and penalty can be granted by the Settlement Commission only under direct tax laws.
The Finance Bill, 2007 has restricted the scope for settlement of cases by a plethora of amendments to the Income-Tax Act, 1961. Previously, the assessment proceeding had to be pending for taxpayers to seek settlement of cases.
The latest Finance Bill has changed the definition of the term `case' by excluding certain pending proceedings, such as (i) assessment or reassessment or re-computation under Section 147; (ii) assessment consequent to search contained in Section 153(A) or Section 153(C); and (iii) a proceeding for fresh assessment for giving effect to appellate order under Section 254 or a revision/rectification under Section 263 or Section 264.
Now, settlement is possible only if no action is initiated by the Department and the taxpayer on his own volition seeks settlement of the case. This change upsets the normal procedure of seeking settlement by the taxpayers consequent to some findings by the Department.
Some leeway is still available for taxpayers for settlement, such as (i) seeking settlement when the assessment year has commenced and no assessment is made (irrespective of whether the return of income was furnished or not); (ii) the regular assessment under Section 143 is pending; and (iii) where a survey is conducted under Section 133(A) and no action is initiated up to the date of making application to the Settlement Commission.
Settlement in respect of search cases is not possible. However, this disadvantage is compensated by the insertion of Section 271(AAA), which provides for 10 per cent additional tax with relief from concealment penalty if the admission is made at the time of search as per Section 132(4).
Some justified changes include:
Seeking payment of tax before making the application for settlement and enclosing the proof of payment of tax with the application;
Increase in quantum of income-tax additionally payable on the additional income disclosed in the application, which must exceed Rs 3 lakh;
Sending a copy of the application for settlement to the assessing officer by the taxpayer.
The time limit for disposal of the case by the Settlement Commission has been drastically reduced from four years to nine months from the end of the month in which the application was made. This reduction in time limit could be justified to the limited scope for seeking settlement by the taxpayers w.e.f. June 1, 2007. However, for pending cases, the time limit for disposal has been fixed as March 31, 2008.
One realistic amendment relates to restricting the power of the Settlement Commission to grant immunity from prosecution and penalty. From now on, immunity from prosecution and penalty can be granted by the Commission only under direct tax laws, such as the Income-Tax Act and the Wealth Tax Act. Earlier, the Commission could grant relief from punishment under the Indian Penal Code or any other Central legislation which was in force.
Denial of repeat settlement to the same taxpayer by means of amendment to Section 245K is retrograde as that would encourage subterfuge mechanisms. An individual taxpayer who had taken settlement earlier may go in for a partnership firm or company form of organisation subsequently, to keep the settlement gateway open for the future.
V. K. Subramani (The author is an Erode-based chartered accountant.)